~ Investment Strategy

Review of the Week’s News

Interest-rate differentials continue to dominate currency markets. With the can kicked down the road again in a partial Greek solution, the EUR rallied. The USD fell as disappointing economic data pushed back tightening expectations. If this risk-off phase continues I expect the USD to rise on risk aversion but at present all scenarios seem to be negative for the USD: it fell on bad economic data last week, but good data would mean a risk-on phase with carry trading pushing down the USD. GBP continued its long weakening trend, owing to the state of the economy. AUD and JPY look directionless in the short term. CHF continues to strengthen.

The month-long downtrend in the S&P 500 continues, and Treasuries and Bunds continue to rally. Global equities continue to drift downwards, with Europe looking like the US, Japan and EM continuing recent downtrends, and Hong Kong and Korea struggling to stay near recent highs.

Commodity markets continued to look generally weak. Oil is flatlining and copper staged a limp rally that failed to break a volatile downtrend. Cocoa and coffee remained near recent lows. However, palladium has had a strong upward spurt in its volatile downtrend, natural gas ran strongly upward, and the agricultural complex moved up as weather concerns continued to dominate the markets.

Newsflow:

Further EU aid to Greece looks likely.

Ollanta Humala in the lead in counting of Peru’s presidential vote. Markets react negatively (on account of his past support for Chavez) but both candidates are committed to continuing pro-growth policies of the present government.

Socialists were beaten by the Social Democrats in Portugal’s election; the latter will likely form a coalition government with the People’s Party. All three main parties are committed to fiscal austerity. Voters have yet to understand that they will not end their subservience to Europe by electing establishment parties.

Japanese politics remains a farce. Kan survives a vote of no confidence only by promising to step down when the immediate crisis is past.

Clashes in Yemen as Saleh has an operation in Saudi Arabia to mend damage from a missile strike last week.

China average land price in transactions falls 32% MOM, but this is likely caused by the governments diktat on social housing — are developers waiting for a policy reversal?